Two commissioners aren’t happy with a recent enforcement action by the watchdog
Two commissioners from the US Securities and Exchange Commission (SEC) have openly criticized the agency’s settlement with Flyfish Club, a restaurant project that sold NFTs as memberships. Flyfish Club agreed to pay $750,000 as part of a settlement over allegations that it conducted an unregistered sale of crypto asset securities. The SEC stated that Flyfish raised $14.8 million by selling 1,600 NFTs to US investors, claiming the NFTs qualified as investment contracts.
However, SEC commissioners Hester Peirce and Mark Uyeda disagreed with the settlement, arguing that Flyfish NFTs were essentially memberships rather than securities. In their dissent, they expressed concerns that the enforcement action stifles innovation, arguing that NFTs in this case did not pose significant risks to investors. They called for more flexibility for NFT creators to experiment, without the burden of legal uncertainty hanging over them.
Peirce and Uyeda stated, “Creative people should be able to experiment with NFTs without having to consult a high-priced tea-leaf reader — ahem, lawyer.” They believe that by cracking down on non-traditional models like Flyfish, the SEC is limiting innovation in the digital asset space. The two commissioners even joked about the SEC’s approach, saying the agency was not earning trust, referring to it as “Chef SEC.”
The NFTs in question gave holders access to the yet-to-open Flyfish Club, a private restaurant in New York City. The SEC used the Howey test, a legal framework to determine if something qualifies as a security, to argue that the NFTs should have been registered.
While Flyfish did not admit wrongdoing, the restaurant agreed to destroy its remaining NFTs and cease accepting royalties from any secondary sales. This settlement comes after similar enforcement actions by the SEC against other NFT projects in the past year.
